By Amanda Durish Cook
The fallout from GreenHat Energy’s record default in PJM’s financial transmission rights market prompted MISO officials on Wednesday to reassure members that such failures are unlikely to happen there.
“MISO doesn’t believe there’s as much of a risk in our market versus PJM’s,” Director of Finance and Accounting Ross Baker said during a Feb. 20 Advisory Committee conference call.
However, Baker acknowledged that MISO’s ongoing investigation of its own practices could identify some improvements to its FTR credit calculation later this year.
In September, MISO officials said they were giving increased scrutiny to an already in-progress review of the RTO’s own FTR market. At the time, the executives said MISO’s FTR market was less susceptible to a default than PJM’s because MISO relies on a more conservative credit calculation and requires higher collateral, preventing “thinly capitalized” parties from buying large portfolios. The grid operator also said it limits FTR terms to one year, while PJM allows rights for up to four years. The RTO pointed out it estimates the value of transmission congestion more frequently than PJM, updating congestion estimates monthly rather than annually. (See “MISO Reviewing FTR Process” in MISO Board of Directors Briefs: Sept. 20, 2018.)
Baker reiterated MISO’s stance to the Advisory Committee on Wednesday. He said the RTO’s practice of not netting net auction bid prices with estimated congestion credit value for collateral requirements is a “key component for minimizing the magnitude of a default.”
“We haven’t identified any significant issues … We expect we’ll be able to provide an update sometime in May,” Baker said of the ongoing review. “We don’t believe our calculations are perfect; we believe there will be some potential improvements.”
As of December, PJM’s total FTR default was estimated at about $187 million; however, if FERC’s rejection of PJM’s requested waiver of liquidation methods is upheld, the default could climb to more than $430 million, according to PJM. (See PJM: FERC Order Could Boost GreenHat Default by $300M.)
“We don’t have any means of verifying [PJM’s estimate],” Baker told the Advisory Committee.
Responding to a stakeholder question, Baker said he couldn’t be sure whether MISO’s exposure to default is non-existent or greatly reduced compared with PJM. “There certainly is a potential for loss, but we believe it’s much less of an exposure in our market,” Baker said.
Baker said MISO may convene a stakeholder task team to examine possible improvements to the calculation.
MISO will continue its evaluation of FTR practices as planned, concluding sometime this year. Baker said the RTO will discuss any FTR collateral requirement changes with stakeholders in regularly scheduled Market Subcommittee meetings.